FBT and disallowance u/s 40A(9)

Hi Mr Devarajan,

Why do you need to pay FBT on contribution to a staff welfare fundat all? Since such an expense gets disallowed u/s 40A(9), the matteris settled there. The government can't both disallow an amount andexpect us to pay FBT on it as well. The idea behind FBT was to curbthe practice of perquisites enjoyed collectively by employees goinguntaxed in their hands owing to it being practically impossible toattribute an appropriate quantum of those benefits to the individualemployees. While the employer got to knock such expenses off hisincome. The government felt—-not entirely unjustifiably—-it wasgetting swindled out of its legitimate share of revenue—-since oneperson's expense is another person's income, if the former savestax, the latter ought to pay tax to even the scales. Since itwouldn't have been practical to attribute a collective expense likelabour welfare to individual employees and make them pay tax on it,the government made the employer cough up a fringe benefit tax at acertain percentage of the expenses incurred on the workforce.Since in your case we have a specific provision for the disallowanceof contribution to any unrecognized fund, the amount will bedisallowed and there would be no question of paying up the FBT onit.May be if you want to camouflage the nature of this expense in orderto claim it under the head labour welfare, then you'd have to paythe FBT on it.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Devarajan.V." wrote:>> Any contribution to staff benefit fund other than PF, Gratuityetc.> will not be allowed as business expenditure u/s 40A(9). In suchcase,> whether this should be taken under employee welfare for thepurpose of> calculating FBT?>> CA Devarajan.V>

TDS on freight paid on seller's behalf

Hi Mr Sharvari,

I disagree with you. I didn't quite get what you meant by "the onuspasses on to the assessee". Section 194C opens with the words "anyperson RESPONSIBLE for paying any sum". Who in this case—payment tothe transporter made by the buyer on the seller's behalf and debitedto the latter's account—was the one responsible for paying freightto the transporter? The supplier of goods, it seems. Normally it'sthe customer who shells out the freight as the custom of "To-pay" GRis in vogue at most places. But in this case, the goods seem to havebeen supplied on an FOR basis; but the supplier didn't pay up thetransporter when the truck left the destination. Transporters areoften paid only part of the freight when they set sail. The customerupon proper delivery of the goods settles the freight bill anddebits the seller's account, as mutually agreed upon.In such a case, since the customer merely acts as the agent of theseller, it's the seller who'd be responsible for making the TDS.What the customer should do is withhold the tax payment out of thefreight payable and transfer the entry to the supplier. The supplierwould deposit the TDS and comply with the law.As long as it isn't a "To-pay" GR, I don't think the customer can becalled upon to deduct TDS. Section 40a, which disallows the expensefor non-deduction of TDS, targets the assessee who books the expenseand not the one who pays it on someone else's behalf and debits totheir account. Since there's no question of disallowance of thefreight amount in the customer's hands and it's the seller whose taxauditor would report this non-deduction of TDS on the amount offreight claimed as expense, it's logical to conclude that thecustomer can not be made liable for the consequences that ensue uponnon-deduction of TDS.And Mr Jain, disallowance would be applicable only for expenses onwhich TDS was DEDUCTIBLE. If an erroneously-deducted TDS isdeposited late, I don't think there can be any disallowance, basedon the language deployed in section 40a(ia). But once deducted,you're holding the tax amount in a fiduciary capacity as the trusteeof the government. So in case you don't turn it over to thegovernment within time or don't file the TDS return, issue TDScertificate, etc you'd be liable to the penal consequences.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, sharvari.murkute@...wrote:>> Dear Mr Jain>> Yes TDS needs to be deducted because the onus passes on to theassessee.> When the supplier reimburses the amount, it is assumed that allthe> applicable laws has been adhered to.>> I think the 40(a) disallowance should not apply as first of allthe> aforesaid courier expense has not been claimed as an expense inthe first> place for it to be disallowed.>> Dear All>> I have joined this group very recently and i must say that thediscussion> is quite lively>>>>>>>> "R D JAIN" > Sent by: ICAI_CIRC_MEERUT_CA@yahoogroups.com> Oct 03 2008 05:05 PM> Please respond to> ICAI_CIRC_MEERUT_CA@yahoogroups.com>>> To> ICAI_CIRC_MEERUT_CA@yahoogroups.com> cc>> Subject> {amresh's-CA's} TDS on expenses>>>>>> Dear All,>> If an assessee pays tansport Charges on behalf of supplier anddebit> it to suppliers a/c. in books, whether TDS need to be duductedU/s.> 194C on such paymnets.> Also if TDS is not applicable and the same has been duducted butpaid> paid late to the Govt.(in june 08), whether 40a disallowance is> attracted.>> Thanks> R D Jain>

Is interest u/s 234 B/C applicable?

Hi Ramji,

Advance tax Funda is simple. The governing section of advance tax—Section 208—says in EVERY case where the tax liability is upwards ofRs 4999, you've got to fill out ITNS 280. Of course you can takecredit to the extent the others have filled out ITNS 281 to depositthe TDS made on income credited into your account.No matter how many firms the assessee was partner in and how manybusinesses he was drawing income from closed down during the year,if the tax payable by him on the income earned during the yearexceeds Rs 5000, he's got to have paid that tax during the course ofthe financial year itself. Advance tax provisions are based on thepay-as-you-earn scheme—the government needs money; you can't keepthem waiting till you've finalized your accounts and ascertainedyour exact income. Section 234B and 234C seek to penalize assesseeswho've shied away from paying as they earned.We are unnecessarily obfuscating the issue by introducing theconcept of "old" and "new" businesses here. The assessee hasremained the same throughout the year, hasn't he?! He was always inthe know of what was going on—the firm dissolving, the turnoverpeaking towards the fag-end of the year. Only the partnership firmcan take credit for the advance tax paid in Sept and Dec 2007. Hissituation is understandable--he wouldn't have deposited the advancetax in Sept and Dec 2007 if he had had a prognosis that the firmwould breathe its last post 15 Dec 2007. But then doesn't thatdissolved firm stand to claim a refund along with interest u/s 244Aon account of the excess advance tax paid during the year? Iunderstand your client may not have had anything to do with thatfirm any more and it'd be little comfort for him to know about this.What about the ITR of the firm? Was a refund claim lodged? Wouldyour client be entitled to a share in it when it is finallyreceived?The other argument of your client about the turnover having soaredtowards the end of the year isn't sustainable for a nanosecond. Icopy-paste below the proviso to Section 211(1):[Provided that any amount paid by way of advance tax on or beforethe 31st day of March shall also be treated as advance tax paidduring the financial year ending on that day for all the purposes ofthis Act.]So even if the turnover shot thorough the roof in the last fortnightof the year, he had till the evening of 31st March 2008 to haveknown about it. The previous instalments can't be a day later than15 Sept/Dec. Since the year is drawing to a close when the due datefor depositing the last instalment of advance tax approaches, thegovernment has very wisely granted a grace period of 15 days indepositing the last instalment of advance tax. Tax deposited till31st March will be deemed to have been deposited on or before 15thMarch itself. This is aimed at giving the assessees a chance to havea more accurate measure of their income so that the advance tax isthe closest approximation of the final assessed tax, and theassessees are spared the hardships of Section 234B and C. Theproviso to Section 234C too recognizing the windfall nature of thecapital gains and lottery winnings allows the assessee time till31st March of the year to deposit advance tax.So the sudden rise in turnover argument to save 234B/C interest goesout the window.The CBDT does have the powers u/s 119(2)(a) to waive interest u/s234A/B/C. To be sure the CBDT has come out withcirculars/notifications (Notif. F. No. 400/234/95-IT(B), dated 23-5-1996 and Circular No 783, dated November 18, 1999) laying down thecircumstances that warrant the waiver of penal interest underadvance tax provisions. But the CBDT empowers the ChiefCommissioners to waive interest in cases like where the books havebeen seized in a search operation and the assessee isn't in aposition to prepare his accounts; receipts hitherto thought to beexempt have become taxable consequent to a SC judgement or anamendment in the law, etc.Based on the facts narrated by you, your client doesn't have asnowball's chance in hell to get the interest u/s 234B and C waived.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Ramji" wrote:>> I have an unusual issue.>> An individual client of mine, has started a new business from Dec> 2007. He was earlier a partner in a firm and the firm dissolved ason> Dec 2007. He continues to do the same business in his individualname> and has got all the required registrations.>> Now when we were computing his income for filing, he fell short ofthe> tax payment and had to make a large self assessment payment ofincome tax.>> The question is>> Will interest u/s 234 be applicable?>> My arguement to him is that it is his business to estimate hisincome> and pay the advance taxes accordingly. So he is liable for interest> u/s 234.>> His arguement is he was not aware that the firm would split andhence> had paid advance taxes for Sep and Dec on the old basis. However,the> turnover has also peaked in the end of March 2008 and so he wasalso> not aware that this turnover would come, when he paid his advancetax> in March 2008. He says that due to this, he is not liable tointerest> and is willing to now fight it out with the IT department?>> What are the views of my friends in this forum? Is 234 interest> applicable? If so, why? If not, also give reasons, to buttress my> client's case.>> Ramji>

More on Interest u/s 234C

More on Interest u/s 234C
Tuesday, October 7, 2008

Hi Mr Devarajan,

You are right. I shouldn't have worded it the way I did. It came out sounding like I believed there could be a respite from Section 234C interest if the assessee deposited the advance tax by 31st March. The assessee stands to gain in terms of saving of penal interest under Sections 234A and B only if he deposits tax till the last day of the year. Ramji, I have come across a Rajasthan HC judgement that ruled that interest u/s 234C won't be attracted if the assessee hasn't at all deposited any advance tax during the year. Although this judgement won't come to your client's rescue since he did deposit some advance tax during the year. Just for the sake of sharing, I am discussing it below.Section 234B talks of "defaults" in payment of advance tax; section 234C talks of "deferment" of advance tax. The legislature clearly seems to have looked at the two terms differently in the sense that you can't have deferred your responsibility to deposit advance tax if you had defaulted in it. In other words, both these contraventions can't be made simultaneously. Default occurs when you fail to do something that you should've done. You fail to deposit advance tax or the amount deposited by you isn't adequate (90 per cent), then you're liable to penal interest. But "deferment" it seems presupposes the presence of some amount of advance tax instalment being there in the first place. When we have got no instalments of advance tax to begin with, where's the question of shortfall? Section 234C does say like "where the assessee who is liable to pay advance tax HAS FAILED TO PAY SUCH TAX, or […….] and then it goes on to state how in the absence of prescribed percentage of advance tax instalments being deposited on the 15th of Sept, Dec and March, the assessee would be liable to the penal interest. So the text of Section 234C doesn't seem to lend itself open to the interpretation that this section won't be applicable in a situation where the assessee has deposited Zero advance tax. But if we omit the words following the coordinating conjunction "Or", and connect the text appearing after the word "then" in there, this is how it reads:[Where the assessee who is liable to pay advance tax under section 208 has failed to pay such tax, then […] the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from thirty per cent or, as the case may be, sixty per cent of the tax due on the returned income;]Arithmetically speaking it is still possible to argue that Zero also constitutes an amount; and we can calculate the shortfall by reducing zero from 30/60/100 per cent of the tax and charge interest thereon. But linguistically speaking, I think the department is on a sticky wicket in insisting on charging interest u/s 234C where the asseesee hasn't deposited a single penny of advance tax during the year. If I attempted a high jump of 10 feet but managed only 6 feet, then you can say I "fell short" by 4 feet. But if I didn't even try the jump, can you say that I "fell short" by 10 feet?!! In the absence of any available figure of advance tax, we've got nothing to measure the figures of 30/60/100 per cent against. So I don't think advancing (no pun!) the argument that Section 234C isn't applicable in a case where the advance tax is Zero is totally unsustainable— it does hold water, may be a few droplets.The Rajasthan HC judgement that said interest u/s 234C wasn't called for in the event of there being no advance tax before 31st March is CIT v. Smt. Premlata Jalani [2003] 264 ITR 744.Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Devarajan.V" wrote:>> Dear Sanjeevji,> > You have mentioned that, "Since the year is drawing to a close when the due> date > for depositing the last instalment of advance tax approaches, the > Government has very wisely granted a grace period of 15 days in > depositing the last instalment of advance tax. Tax deposited till > 31st March will be deemed to have been deposited on or before 15th > March itself. "> > This portion is not clear to me. Where is this deeming provision for 234C?> In fact the Department is collecting 1% interest for one month for the> shortfall arrived at after the remittance of 15th March. Deeming provision> may only help for interest U/S 234A and B. Please clarify.> > CA Devarajan.V> >> Hi Ramji,> > Advance tax Funda is simple. The governing section of advance tax—> Section 208—says in EVERY case where the tax liability is upwards of > Rs 4999, you've got to fill out ITNS 280. Of course you can take > credit to the extent the others have filled out ITNS 281 to deposit > the TDS made on income credited into your account. > > No matter how many firms the assessee was partner in and how many > businesses he was drawing income from closed down during the year, > if the tax payable by him on the income earned during the year > exceeds Rs 5000, he's got to have paid that tax during the course of > the financial year itself. Advance tax provisions are based on the > pay-as-you-earn scheme—the government needs money; you can't keep > them waiting till you've finalized your accounts and ascertained > your exact income. Section 234B and 234C seek to penalize assessees > who've shied away from paying as they earned. > > We are unnecessarily obfuscating the issue by introducing the > concept of "old" and "new" businesses here. The assessee has > remained the same throughout the year, hasn't he?! He was always in > the know of what was going on—the firm dissolving, the turnover > peaking towards the fag-end of the year. Only the partnership firm > can take credit for the advance tax paid in Sept and Dec 2007. His > situation is understandable- -he wouldn't have deposited the advance > tax in Sept and Dec 2007 if he had had a prognosis that the firm > would breathe its last post 15 Dec 2007. But then doesn't that > dissolved firm stand to claim a refund along with interest u/s 244A > on account of the excess advance tax paid during the year? I > understand your client may not have had anything to do with that > firm any more and it'd be little comfort for him to know about this. > What about the ITR of the firm? Was a refund claim lodged? Would > your client be entitled to a share in it when it is finally > received? > > The other argument of your client about the turnover having soared > towards the end of the year isn't sustainable for a nanosecond. I > copy-paste below the proviso to Section 211(1):> > [Provided that any amount paid by way of advance tax on or before > the 31st day of March shall also be treated as advance tax paid > during the financial year ending on that day for all the purposes of > this Act.]> > So even if the turnover shot thorough the roof in the last fortnight > of the year, he had till the evening of 31st March 2008 to have > known about it. The previous instalments can't be a day later than > 15 Sept/Dec. Since the year is drawing to a close when the due date > for depositing the last instalment of advance tax approaches, the > government has very wisely granted a grace period of 15 days in > depositing the last instalment of advance tax. Tax deposited till > 31st March will be deemed to have been deposited on or before 15th > March itself. This is aimed at giving the assessees a chance to have > a more accurate measure of their income so that the advance tax is > the closest approximation of the final assessed tax, and the > assessees are spared the hardships of Section 234B and C. The > proviso to Section 234C too recognizing the windfall nature of the > capital gains and lottery winnings allows the assessee time till > 31st March of the year to deposit advance tax. > > So the sudden rise in turnover argument to save 234B/C interest goes > out the window.> > The CBDT does have the powers u/s 119(2)(a) to waive interest u/s > 234A/B/C. To be sure the CBDT has come out with > circulars/notificat ions (Notif. F. No. 400/234/95-IT( B), dated 23-5-> 1996 and Circular No 783, dated November 18, 1999) laying down the > circumstances that warrant the waiver of penal interest under > advance tax provisions. But the CBDT empowers the Chief > Commissioners to waive interest in cases like where the books have > been seized in a search operation and the assessee isn't in a > position to prepare his accounts; receipts hitherto thought to be > exempt have become taxable consequent to a SC judgement or an > amendment in the law, etc. > > Based on the facts narrated by you, your client doesn't have a > snowball's chance in hell to get the interest u/s 234B and C waived.> > Thanks,> > CA Sanjeev Bedi> > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Ramji" > wrote:> >> > I have an unusual issue.> > > > An individual client of mine, has started a new business from Dec> > 2007. He was earlier a partner in a firm and the firm dissolved as > on> > Dec 2007. He continues to do the same business in his individual > name> > and has got all the required registrations.> > > > Now when we were computing his income for filing, he fell short of > the> > tax payment and had to make a large self assessment payment of > income tax.> > > > The question is> > > > Will interest u/s 234 be applicable?> > > > My arguement to him is that it is his business to estimate his > income> > and pay the advance taxes accordingly. So he is liable for interest> > u/s 234.> > > > His arguement is he was not aware that the firm would split and > hence> > had paid advance taxes for Sep and Dec on the old basis. However, > the> > turnover has also peaked in the end of March 2008 and so he was > also> > not aware that this turnover would come, when he paid his advance > tax> > in March 2008. He says that due to this, he is not liable to > interest> > and is willing to now fight it out with the IT department?> > > > What are the views of my friends in this forum? Is 234 interest> > applicable? If so, why? If not, also give reasons, to buttress my> > client's case.> > > > Ramji> >

Claiming STT rebate against MAT

Hi Mr Gala,

I don't see any reason why STT can't be claimed against MAT profits. Section 88E lays down the pre-requisite that to be eligible to claim rebate on account of Securities Transaction Tax, the assessee must have income under the head "Profits and gains of business and profession". Now Chapter XII-B of the Act, which contains Section 115JB that levies MAT, is titled "Special provisions relating to certain companies". Section 115JB requires companies to shell out a minimum of 10 per cent of their book profits towards income tax. If the tax by regular computation doesn't work out to that amount, an amount equal to 10% of the book profits of the company acts as the company's surrogate Total Income. This method bypasses the normal method of computation of total income whereby we determine the income under each head and then aggregate them to arrive at the figure of total income. Just because Section 115JB creates a fictional total income, it shouldn't mean we lose the right to examine the individual components of that income. Section 115JB doesn't lay down any new definition of the term "total income". It merely provides for an alternative method of finding out the total income in certain situations. So going by the usual definition of total income, we can still argue that the total income even if it is determined in an ad hoc fashion u/s 115JB continues to have its components—like the business income, house property income, capital gains and so on. Since the company had had business profits, it would be eligible to claim STT rebate u/s 88E irrespective of the fact that it's had to arrive at its total income in the manner it was required to under Section 115JB. I think you can assign weights based on the composition of your regular total income to the total income computed u/s 115JB to determine the percentage share of the business income from securities transactions therein. But then where's the need to do it? You already have the average rate of tax in MAT—10 per cent. Just apply this rate to the income from the STT transactionsThanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "galavilas" wrote:>> Hello,> Can anybody advice me if We can claim STT rebate against tax payable> under section 115JB(MAT).An early reply will be highly appreciated.> > Vilas M. Gala

Receipt of Share Application money in Cash and Section 269SS

Hi SanJosh, Deepakji and everyone,

Here's my take on this:Section 269SS came to grace the statute book on 30th June 1984. To get under the skin of a provision we must first understand what was the mischief that was sought to be curbed by the introduction of that provision. So let's see how CBDT Circular No 387 dated 6th July 1984 tried to explain the rationale behind the insertion of Section 269SS:[Unaccounted cash found in the course of searches carried out by the Income-tax Department is often explained by taxpayers as representing loans taken from or deposits made by various persons. Unaccounted income is also brought into the books of account in the form of such loans and deposits and taxpayers are also able to get confirmatory letters from such persons in support of their explanation.With a view to countering this device, which enables taxpayers to explain away unaccounted cash or unaccounted deposits, the Finance Act has inserted a new section 269SS in the Income-tax Act debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan and deposit is Rs. 10,000 or more. This prohibition will also apply in cases where on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), and the amount or the aggregate amount remaining unpaid is Rs. 10,000 or more. The prohibition will also apply in cases where the amount of such loan or deposit, together with the aggregate amount remaining unpaid on the date on which such loan or deposit is proposed to be taken, is Rs. 10,000 or more.]The present-day threshold of loan/deposit, crossing which you may fall foul of Section 269SS, stands at Rs 20000 of course. So that was the mischief: Unscrupulous assessees explaining away excess cash found in their possession as loans/ deposits accepted from relatives/friends. As there was no way to trace the movement of cash, the authorities could only allege some hanky-panky on the part of the assessee; they could never prove it. So it was thought how about making it mandatory to accept loans/deposits of Rs 20k or more by way of account payee cheques/bank drafts only. The bank statement will constitute a reliable evidence of the loans actually having come to appear in the assessee's books by bona fide entries only and not having been arranged posthumously after a situation where an assessee having to explain the cash in his possession had arisen. I don't have any quarrel with Section 269SS as such, although I am vehemently opposed to its reciprocal Section 40A(3), which debars payments exceeding Rs 20k (Mind you Section 40A(3) applies to payments of Rs 20001 and above, but Section 269SS applies to receipts of more than Rs 19999. I know at least one case where an assessee landed in huge trouble for not having made this distinction! ). So section 269SS I think is a perfectly legitimate provision meant to protect the interests of the revenue. I feel to decide how far and wide the meaning of the word "deposit" as envisaged in Section 269SS would cast its net, we should do an honest introspection without being prejudiced in the assessee's favour. Considering the huge scope of tax evasion in the absence of Section 269SS being there on the Act, I would rather be tilted towards the revenue's side on this one. If we contend that share application money isn't covered u/s 269SS on account of it neither being a deposit nor being a loan, couldn't this open the floodgates especially for private companies—which we know are nothing but glorified family enterprises—to just brush away unaccounted cash as the amount received towards application money for allotment of shares and then go on to allot shares (to shareholders and their relatives)? But wait a minute! There's another legislation known as the Companies Act, 1956. If we look at the provisions of that Act, it seems there are ample safeguards to make sure the directors of even private companies can not use the media of share application money as a peg to hang their ill-gotten wealth on. Section 69(4) of the Cos Act requires all application monies received from potential shareholders to be kept deposited in a scheduled bank and to remain there till the time the shares are allotted. There's a requirement under the Cos Act to put a kind of lock on the share application money till the entire amount payable on application of shares is received. So there doesn't seem to be any way an assessee-company found in possession of unaccounted for cash could get off the hook by asserting that the excess cash was on account of share application money it had received towards allotment of shares it was planning. The share application money would be lying stashed away in a scheduled bank and not in the company's cash till. Also, here is an extract from section 69(4) of the Cos Act:[…..and the sum payable on application for the amount so stated has been paid to and received by the company, whether in CASH or by a cheque or other instrument which has been paid.]So as far as the Cos Act is concerned, there certainly is no bar on the company accepting share application money in cash initially.The Jharkhand HC in Bhalotia Engg (P) Ltd's case doesn't at all seem to have given thought to these points. All it bothered about in its entire judgement was whether share application money partook of the character of a Deposit. I too believe share application money to be purely deposit until the shares get allotted, but that isn't the end of the matter. To decide whether section 269SS gets attracted or not in this case, one needs to look much further. If whether or not an amount of Rs 20K or more constitutes deposit was all it took to impose penalty u/s 271D, all those accepting cash advances towards sale of buildings, machineries, etc and later returning those consequent to a transaction not having come through would be held guilty of contravening Section 269SS. So in my view the Jharkhand HC didn't take the totality of the circumstances surrounding a transaction involving share application money into view in delivering this judgement. A penalty u/s 271D wasn't called for, in my arrogant opinion. A Caveat: Receipt of share application money in cash had better be avoided. Accept only crossed cheques and the like. Thanks,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "Sanjeev Josh" wrote:>> > Dear Deepak Ji,> > Thanks a ton for pointing out the disturbing decision in case of> Bhalotia Eng. Works handed out by the Hon'ble JHARKHAND High Court.> > I have no hesitation in admitting that this decision had not been> noticed by me. I would love to go into the depth of the issue now.> > Thank you for pointing it out. That's the beauty of this group! Thanks> Amresh Ji for being there!> > Tax is a ocean. The expert a little individual on a paddle boat! The> distance he travels depends on the strength of his/her leg muscles! The> depth to which he/she could dive depends upon the capacity and the> ability of the lungs to hold air. The correct direction he/she travles> depends on the little compass he/she has with him/her in the form of> books, case-laws etc AND the friends like you who guide him/her as a> NORTH STAR!> > Thanks Deepak for twinkeling like the NORTH STAR! making me a poet !>> > Deepak I have a request: You attached an attachment to your message. I> have not been able to access it. Could you please send it to me at my> email worldsbestca@ ... ?> > I would love to investigate the Hon'ble JHARKHAND High Court.> > I would love to see how how the principle of "Purposive interpretation"> have been applied by the said Hon'ble High Court.> > s far as my knowledge goes "Purposive interpretation" rule is to some> extent an extension of the literal rule and under it the words of a> statute will as far as possible be construed according to their> ordinary, plain, and natural meaning, unless this leads to an absurd> result. It is used by the courts where a statutory provision is capable> of more than one literal meaning and leads the judge to select the one> which avoids absurdity, or where a study of the statute as a whole> reveals that the conclusion reached by applying the literal rule is> contrary to the intention of Parliament.> > Thanks again.> > Sanjeev Josh FCA IRS> >> > Dear Friends> > With due respect to everybody I wd like to point out a disturbing> decision in case of Bhalotia Eng. Works handed out by the JHARKHAND HC.> which is disturbing & has been commented upon as wrong one by many> experts, but still the discussion on the same is worth noting. Pl find> enclosed herewith in a separate file the material I have on the subject.> The same has previously been published in various magazines of TAXMAN.> > Â> > CA DEEPAK GADGIL> > SOLAPUR, MAHARASHTRA> >> > --- On Mon, 22/9/08, Sanjeev Josh worldsbestca@ wrote:> >> >> > Dear Sandeep,> > I would tend to cast my vote with you!> > Your answer is more likely than not the correct one.> > Cross the fingers!> > Sanjeev Josh FCA> >> > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "sandeep agrawal"> wrote:> > >> > > Dear Sir,> > >> > > Share Application money is neither Loan nor deposit so in my view> 269ss not> > > applicble in this case.> > >> > >> > > Regrads> > >> > > Sandeep Agrawal> > >> > >> > > On 9/20/08, manish saraogi man_saraogi@ ... wrote:> > > >> > > > Section 269SS covers acceptance of both loans as well as deposits> and> > > > if the aggregate amount is in excess of Rs. 20000/-, then there is> a> > > > voilation.> > > >> > > > Acceptance of Share application in cash will fall within the> purview of> > > > Section 269 SS.

Disallowance of Expenses due to non-deduction of TDS--Section 10B case

Hi Mr Kalra,

I don't think you need to add back the amount of expenses on which TDS though ought to have been deducted hasn't been deducted. Section 40 says "the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". And Section 10B forms part of Chapter III, which chapter is titled "Incomes which do not form part of total income". But Section 10B speaks not of "exemption" but of "deduction". The Chapter heading carries more weight than the section itself. So I feel since income eligible for Section 10B exemption never forms part of our total income and therefore we never undertake the exercise of "computing the income chargeable under the head B/P", there's no question of disallowance u/s 40a(ia) in case TDS hasn't been made on the specified expenses.Other consequences of non-deduction of TDS will follow, of course.Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "verendra Kalra" wrote:>> > > Dear Members, > > The income of an enterprise is exempt u/s 10B. Pl. advise what will be the> impact on the exempt profits, in respect of any disallowance due to failure> to deduct TDS on expense payments made to earn the export income of that> enterprise?> > > > Verendra Kalra> Nangia and Company> Chartered Accountants> 75/7, Rajpur Road,> Dehradun -248001 (India)> O +91-135- 2747084,2743283> F +91-135- 2740186> E-mail: verendra.kalra@ ... > W-Site: www.nangia.com Please note change

TAX AUDIT OF CO-OPERATIVE SOCIETY

Dear Mr Agrawal,

Yes of course the co-operative society engaged in the business oflending money to its constituents would be required to get itsaccounts audited u/s 44AB if the interest receipts exceed Rs 40lacs. The fact that the whole of the profits of the co-op might bedeductible u/s 80P does not bear upon the applicability of Section44AB. Section 80P admits of the deduction from "profits and gains ofbusiness". Interest income being business receipts in the co-op'shands, it'd be called upon to appoint a CA u/s 44AB.I also reproduce the relevant para below from the ICAI's guidancenote on tax audit:[A co-operative society carrying on business may enjoy exemptionunder section 80P. Such institutions/associations of persons willhave to get their accounts audited and to furnish such audit reportfor purposes of section 44AB if their turnover in business exceedsRs. 40 lakhs]Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Anil Kumar Agrawal" wrote:>> Dear friends,Will any body let me know whether a co-operativesociety of bank engaged in the activity of financing to its membersand getting the interest ` require to get its a/c audited u/s 44AB.The objective of the society is not to make profit although it hasearned some profit.CA Anil Agrawal

TDS on Payments to Foreigner--Commission and Content-writing on the web

Hello Amreshji and Mr Parmar,

There is no doubt that no TDS is deductible in case commission is paid to a foreigner for soliciting orders abroad. This is despite the Explanation to Section 9(2) added by the Finance Act 2007. I'd discussed this issue very thoroughly some time back. Please look up my Message No 13373 dated May 14, 2007. About the fee paid to the American for writing content for an Indian website—what we need to see is: Does payment for writing made to a writer abroad constitute fee for technical services as defined in Explanation 2 below Section 9(1)(vii)? Writing something worth putting up on a site definitely involves skill. There's a technique behind it. Besides Amreshji you said the American would be appointed as the Site Club "Manager". Here's how "fee for technical services" is defined in the Explanation 2:[Explanation [2].—For the purposes of this clause, "fees for technical services" means any consideration […] for the rendering of any MANAGERIAL, technical or consultancy services…[…..[ .A site club manager would certainly be doing much more than banging away at the keyboard. The Explanation added by FA 2007 dispenses with the requirement of the non-resident having a place of business or business connection in India for his income to be subjected to tax in India. So it's difficult, based on a reading of Section 9, to argue that the revenues shared with the American manager of an Indian website won't be subjected to tax in India. But no final conclusion in respect of taxability of a non-resident in India can be drawn until we have referred to the relevant DTAA—in this case the DTAA with the USA. I quote below Article 15 of the Indo-US DTAA because the kind of services in question I think would be in the nature of "Independent Personal Services":[ARTICLE 15 - Independent personal services - 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State :(a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or(b)if the person's stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year.2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. ]Here the Contracting state means the US and the other contracting state, India. So independent personal services rendered by a resident of the United States would be taxable in the US only, unless the American has spent some time in India in connection with the work, which in the present situation isn't the case. Alternatively, if we take the case of someone in India being appointed to write content for an American website, would his income received in dollars abroad would be taxable in India? Yes very much. So based on this logic, an American writing from abroad for an Indian website can't be brought to tax in India. The new Explanation to Section 9 does not seem to have taken online services rendered across the internet into account. Unless such services are specifically charged to tax in India by suitable and explicit amendments in the Income Tax Act and the DTAA tells us in unambiguous terms the situs of taxation of such incomes, we can safely conclude that payment to a foreigner for services rendered abroad won't be taxable in India. More than the income tax, what you'd need to worry about is the Service Tax by reverse charge. There's no Rs 10 lac-exemption in such cases!Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "CA. PRAMOD PARMAR" wrote:>> Dear Memebrs,> > A firm paid commission to a foreigner in foreign currency for getting client> in US> > The foreigner has no office/agent in India> > Whether tds is deductible> > If yes than at what rate.> > Regards,> CA P R Parmar>Hi,I also add here a similar query .A company is running a on line site and now want to engage a person as Site Club manager in US and shall share the new revenue with the individual staying at US who of course is an American. He will be contemporary writer and shall write for the site. Whether tds is deductible u/s 195? If yes, at what rate? How to file TDS returns as the receiver is not having PAN?CA AMRESH VASHISHT

: Lineal Ascendant/Descendant and Manu Bhajji

Dearest Balu,

For your kind information, I have read Manusmriti, though surely not as thoroughly as I have read the Income Tax Act! I am no pseudo-liberal who takes a sadistic delight in denigrating my own culture after having read a couple of Angrezi books. Swami Vivekananda said that Hinduism isn't afraid of the Truth. The greatest thing about Hinduism is its inbuilt self-correction mechanism. So whilst we had the system of Sati—women being set alight on the funeral pyres of their dead husbands; we also had people like Raja Ram Mohan Roy who rose in protest and had it banished. What distinguishes Hinduism from the Semitic religions is that the Hindus do not treat their scriptures as Words of God, unlike the followers of Semitic religions. Manusmriti, many people believe, says nasty things about women and Shudras. May be we can argue those aren't original verses, but later interpolations. I am no scholar of Sanskrit and have no means of knowing whether the English texts faithfully render what Manu wanted to say originally. But from what I have read from writings of eminent and unbiased authors—and not what Arun Shourie describes as "eminent historians" mind you--it's difficult to believe Manu had a high regard for women.And yes I said "Manu-like" to convey a sexist attitude. This I did despite having known that Friedrich Nietzsche, probably the greatest German philosopher and one of Osho Rajneesh's all-time favourites, had this to say about the Manusmriti:"Close the Bible and open the Manu Smriti. It has an affirmation of life, a triumphing agreeable sensation in life and that to draw up a lawbook such as Manu means to permit oneself to get the upper hand, to become perfection, to be ambitious of the highest art of living".And I don't think I contradicted myself by quoting from the HMA the definition of Sapinda. Hinduism is much bigger than Manusmriti. While we have had a history of oppression of women and other people, we have been able to move on, because we didn't believe our scriptures had any divine sanction. Let's not strip our great heritage of its greatest strength—self-criticism and self-correction. Namaskara,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "balunand" wrote:>> Dear Sanjeevji,> > I am a little surprised and disappointed that you too find it > fashionable to indulge in Manu bashing, a normal practice that I > have found among people who have never bothered to read what he has > written. Nowhere does Manu say that mother is not part of the > ancestry. Whether in inheritence or offering funeral oblations the > three generations from both father and mother's side are always > considered. In fact you contradict yourself in your last para when > you quote the definition of sapindaship as per HMA. Are you under > the impression that the 500 odd politicians sitting in our > parliament suddenly came up with that definition in 1956??. In > reality it is nothing but an english version of Shastric law. > > > --- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "Sanjeev Bedi" > wrote:> >> > Hi Priyank,> > > > Lineal ascendant/descendan t refers to people who form a vertical, > > unbroken line in their relationship. An ascendant is usually more > > remote than a grandfather. It seems the draftsmen decided to use > the > > words "lineal ascendant/descendan t" instead of saying Father, > > Grandfather, Great grandfather and so on. In terms of Section 56, > > this line can be extended to any degree. Since Ascent refers to a > > thing going skywards, and Descent means heading down south, it is > > clear that people related to you horizontally viz your cousins > > aren't your relatives for the purposes of Section 56 at least. > > > > Probably there has been a case or two where it's been held that > > lineal ascendant/descendan t refers to a person related to us > through > > the male lineage only—our mother, since she took our father's name > > after marriage, changed her lineage. Another school of thought is > > that the mother's mother i.e. the Nani and the mother's father > i.e. > > the Nana too are relatives within the meaning of Section 56 and > > there shouldn't be any problem accepting gifts from them. > > > > I am more inclined to believe the second line of reasoning. > > Especially in these times it seems too sexist and Manu-like to > argue > > that mother's Mom and Dad have got nothing to do with our > ancestry. > > But for our mothers we wouldn't be here. But for our fathers we > > could still have been here since this is the age of artificial > > insemination! In the absence of any statutory definition of lineal > > ascendant/descendan t in the I T Act, we can safely derive our > > meaning from the sense in which these words are understood > > ordinarily-- we have descended from our Mother as much as, if not > > more than, our father. > > > > The Hindu Marriage Act 1955 also defines a "Sapinda relationship" > as > > a relationship that "extends as far as the third generation > > (inclusive) in the line of ascent through the mother, and the > fifth > > (inclusive) in the line of ascent through the father, the line > being > > traced upwards in each case from the person concerned, who is to > be > > counted as the first generation"> > > > So the HMA recognizes "ascent through the mother".> > > > Based on the above, in my opinion, Nanas and Nanis are relatives. > > > > Thanks,> > > > CA Sanjeev Bedi> > > > > > --- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "priyankkabra" > > wrote:> > >> > > Who all are covered in Lineal Ascendent or Descendent?> > > Whether father, mother, grandfather, grandmother paternal as > well > > as > > > maternal, i.e., dada dadi n nana nani are covered?

TDS on Hostel--Boarding and Lodging

Hi Ganesh,

I would put my money on tax being deductible u/s 194I rather than Section 194C. The meaning of "rent" given in Section 194I is pretty wide. Amount paid to a hostel owner for accommodating the company's workers seems to fit more snugly into Section 194I than Section 194C. You yourself have said that your company has contracted with the hostel owner to rent out a dormitory with a view to cut down attrition rates. So it's basically a contract for "accommodation" . You can't prevent employees from changing jobs by holding out the incentive of boarding alone. Primarily it's the guarantee of lodging that you hope to bring down your attrition rate with. The hostel owner is always going to argue in favour of Section 194C as the TDS rate for Rent is 7.5 times. And it doesn't really matter what's the structure of the bill—a predominant part of the hostel bill may constitute expenses on account of boarding. That wouldn't alter the nature of this payment. The following case law is an instructive one:[The definition, for the purpose of the Income-tax Act, of the nomenclature `rent' as expounded in the Explanation to section 194-I itself amply reveals that the same is projected as the generic term which includes within its ambit payment made ON WHATSOEVER ACCOUNT for occupation of a tenanted portion. After taking into account the definition of rent, it apparently appears to be a composite concept. Once the rent is comprehended as a composite concept then it is not capable of being fragmented - Smt. Bishaka Sarkar v. Union of India [1996] 219 ITR 327 (Cal.).]In view of the above interpretation of "rent" by the court, I think you can't even bifurcate the payment into Boarding and Lodging Expenses and deduct TDS at two different rates. The whole of the amount paid to the hostel owner would be subjected to TDS u/s 194I.How about the employees directly paying up to the hostel owner and getting reimbursement from the company?Thanks,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "Ganesh P." wrote:>> Dear Professionals> > I have a query on TDS on the amount payable to the Hostel owner. I give> below the facts of the case and seek your valuable advise:> > Facts of the case:> We have introduced a dormitory system in order to tackle the attrition> problem with relation to our Operators. We have tied up with a Working> employees hostel who will provide an entire floor of the premises> exclusively for us to use for our operator purposes. We would be paying> a flat amount as the Accommodation charges (as we refer presently) which> includes the charges for a minimum of 100 employees for their stay, food> and other charges viz. electricity, water etc.> > Query:> Now would like to know whether the above payment would attract TDS u/s> 194I or u/s 194C as the predominant portion is for the catering services> only as arguable by the Service provider. The net inflow for the> service provider would be very less if the case is argued as "Rent" as> the rate is higher.> > Your views please...> > Best regards,> Ganesh> Senior Executive - Finance Intimate Fashions (India) Pvt Ltd Ph: +91> 44 6740 4400 Extn: 4452 Ph: +91 44 6740 4452 (D) Fax: +91 44 6740> 4692 Mobile: 98400 89137

Re: Claim of housing loan interest--Property in Mom's name

Hi Purnima,

The sine qua non of deduction of interest u/s 24 as well as the deduction of principal u/s 80C is that the income in respect of which the deduction is sought to be claimed must be assessable under the head "Income from House Property"--- in the hands of the assessee and not just anyone. A son doesn't become liable to be taxed for the house property owned by his mother. As such your client won't be able to claim deduction of interest u/s 24(b). Even if the property had been owned jointly, your client would've been able to claim proportionate deduction. But even now if the property gets re-registered in the son's name—after being duly mutated in the land revenue records—the son will be able to claim the housing loan interest. But that might involve coughing up stamp duty at the sub-registrar' s office. Some states have exempted payment of stamp duty in case of family transfers of immovable properties. Verify it from the Sub-registrar' s office. Thanks,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, Purnima Jolly wrote:>Hi Friends, I have a query related to claim of housing loan interest. One of my client bought a house in the name of his mother by availing loan from bank. Can he deduct the payment of interset on housing loan from his salary income. Thanks and regards Purnima

Disallowance of Bonus u/s 43B

From: Sanjeev Bedi Subject: {amresh's-CA's} Re: Disallowance u/s 43B--Performance BonusTo: ICAI_CIRC_MEERUT_CA@yahoogroups.comDate: Friday, July 25, 2008, 12:52 AM
Hi Anand,You seem to be right. The great idea behind introduction of Section 43B into the Act was to create a disincentive for the assessees who under the guise of mercantile system of accounting simply made book entries without bothering to dispense cash to the employees/governmen t authorities for long periods of time. This is what the Objects and Reasons (paras 59 and 60) of Finance Act 1983 which brought in Section 43B states (capitalization mine): [Several cases have come to notice where taxpayers do not discharge their STATUTORY LIABILITY such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc., for long periods of time, extending sometimes to several years. For the purpose of their income-tax assessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand they dispute the liability and do not discharge the same. For some reason or the other undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the lime being in force (irrespective of whether such tax or duty is disputed or not) or any sum payable by the assessee as an employer by way of contribution to any provident FUND or superannuation FUND or gratuity FUND or any other FUND for the welfare of employees shall be allowed only in computing the income of that previous year in which such sum is actually paid by him]The emphasis clearly is on statutory liability and not just any other contractual liability arising as a result of mutual agreement between the employer and the employee. The Kolkatta High Court in the case you cited--Exide Industries Ltd. v. Union of India [2007] 164 Taxman 9—did strike down clause (f) of Section 43B as unconstitutional and unconscionable. The court ruled that leave encashment provision was allowable merely on accrual basis. Parliament had injected clause (f) relating to LWW in Section 43B in the FA 2001 to scuttle the Apex Court decision in of Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC). The Supreme Court had allowed in that case the leave encashment expense on the basis of a mere provision. On the government's move to disregard the judge-made law in Bharat Movers case by bringing in clause (f) in Section 43B, the High court had this to say:[We do not for a single moment observe that the Legislature was not entitled to bring such amendment. They were within their power to bring such amendment. However they must disclose reasons which would be consistent with the provisions of the Constitution and the laws of the land and not for the sole object of nullifying the Apex Court decision]The High Court struck down clause (f) as unconstitutional, arbitrary and de hors the SC decision in Bharat Earth Movers. Based on the above discussion, in my view, performance- linked bonus—and not the one that the employer is statutorily required to pay to the employees in pursuance of the Payment of Bonus Act—can be claimed on the basis of an entry in the books of account, notwithstanding that it hasn't been disbursed before the filing of return of income.To avoid conflict you might consider changing the nomenclature of this payment—look up synonyms of Bonus in the OED!
Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, anand mishra wrote:>> Dear friends,> > This is regarding disalloances of Bonus under section 43B of IT Act, I am of opinion that section 43B is restricted up to payment of statutory Bonus covered under payment of Bonus Act. payment of bonus in the nature of ex-gratia / performance bonus should not be covered under this section and same may be allowed on accrual basis.> > Specially after decision of Kolkata high court in exide industries case in case of leave encashment, it is clear that only statutory bonus will be covered under 43B , exgratia or performance bonus will be allowed on acrrual basis. > > If you have any other opinion or any case law in support of this, please share with me.> > Regards,> > Anand Mishra

FBT on car insurance

Hi Rahul,

Mr J P Aggarwal, the doyen of the group, has answered your query quite exhaustively. Indeed if we go by the CBDT circular, it's difficult to contend that car insurance is not "car running and maintenance" as envisaged u/s 115WB(2)(H). If your car isn't insured in respect of third-party indemnification, you can be challaned by traffic cops. So at least the third-party insurance is a necessary expense to run the car. But most of us go in for the comprehensive insurance cover these days, which covers the risk of damages to our car as well. May be we can make a case for not shelling out FBT on the component of insurance premium other than that attributable to third-party insurance at least, since we have an option not to take it!If you look up the Bare Act, Section 115WB(2)(H) says this:[(H) repair, running (including fuel), maintenance of motor cars and the amount of depreciation thereon]Notice the words within brackets "including fuel"? Pray, how on earth can you run a car without fuel (LPG/CNG is also a variant of fuel)? Expenditure on fuel is the prime expenditure you incur to get a car running. So where was the need to insert these words? This shows the lawmakers don't want to give a restrictive meaning to "running and maintenance" . This is also evident from even driver's salary and interest on car loan being subjected to FBT on the grounds that these constitute car running expenses!Car Insurance pe FBT lagega, mere vichar mein.Thanks,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "CA J P Agarwal" wrote:>> Dear Friends,> > The CBDT circular on FBT (probably dated 28.7.05) covered salary paid to driver as well as garage rent to be included as motor car repair and maintenance for FBT, so as per CBDT insurance would also be covered (I don't remember if insurance was also specifically mentioned) on the reasoning of proximate purpose.> > Thus, if the matter is petty go by the CBDT but if you want to contest and you client is willing than you should contest it. Insurance is treated as different from repairs u/s 31 of IT Act and cannot be treated as repair or maintenance.> > Repairs and insurance of machinery, plant and furniture.> > 1531. 16In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed-> > (i) the amount paid on account of current repairs thereto ;> > (ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof.> > 18[Explanation. -For the removal of doubts, it is hereby declared that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure. ]> > > Now coming to wild theory of proximate purpose of CBDT, as described in CBDT circular , I don't think the proximate purpose of any business expenditure is to run the motor car but is to run the business and make profits. Now as per my wild theory, Expenses incurred for making profit is not covered by FBT so none of the expense would be covered by FBT.> > I would seek expert views.> > CA J P Agarwal> J P Associates> Jhansi> ----- Original Message ----- > From: Pramod Vaya > To: http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com > Sent: Thursday, July 24, 2008 2:46 PM> Subject: Re: {amresh's-CA' s} FBT on car insurance> > > Dear Mr Rahul,> > Althought, it is not strictly falling in the definition of repairs and maintenance but still the insurance expenditure would fall under the category of maintenance of the vehicle. Therefore, it will be subject to FBT.> > I would find out in case, any case law support on this.> > Thanks> Pramod Kumar> > > On Wed, 23 Jul 2008 rahulblyca wrote :> >Dear Sir> >> >Whether FBT is payable on car insurance? As per my view car insurance> >is not a part of repair & maint.> >> >Pls. advice. If there is any case law, notification etc. pls. let me> >know.> >> >Regards> >> >CA Rahul Agarwal> >

Taxability of Notice Pay

Hi Dhruv,

In my opinion, only the net salary—remaining after the deduction of notice pay—would be taxable in the hands of the employee. Had it been the other way around i.e. the employee had been fired instead of resigning on his own, the employer would have paid him a month's (or whatever the period of notice) salary. That amount would've been taxable in his hands, wouldn't it? Now that the employee has foregone a month's salary for leaving all of a sudden, shouldn't he be entitled to have that amount knocked off his gross salary? But there's no scope of any deduction from salary---the list of items that can be deducted out of salary as mentioned in Section 16 is exhaustive, the purists might argue. My contention is: the employee was made to forego that salary as part of the terms of employment he had with the employer. I don't think it's an application of income, like say a manager working in a charitable organization foregoing his salary. The manager would still be liable to get taxed on that amount because he's done it voluntarily. But the salaried guy who decides to say goodbye to his employer after finding greener pastures elsewhere isn't foregoing his pay voluntarily—the terms of the employment leave him no choice but to part with a certain period's salary. He gets taxed for the salary he gets in pursuance of the terms of the employment. So how can we tax him for the salary he has had to give up in pursuance of the terms of employment?We do have a case law on this. The facts aren't exactly the same, but the principles of salary taxation have been discussed beautifully. In the case of CIT v. Bachubhai Nagindas Shah [1976] 104 ITR 551 (Guj.), the assessee was appointed as a director of the company on a remuneration of Rs. 400 per month. As the company incurred heavy losses, the board of directors of the company resolved that the directors should waive their rights of remuneration in the previous year. Consequent to this resolution the assessee waived his right of remuneration of the sum of Rs. 4,800, which had become due to him in the relevant previous year for the assessment year 1963-64. The ITO assessed the remuneration of Rs. 4,800 as part of the income of the assessee in spite of the waiver of remuneration by the directors.The matter came up before the Gujarat High Court. The court ruled that income tax is a levy on income. Though the Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a `hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, tax may be payable. Where, however, the income can be said to have not resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. The Court suggested that appropriate relief must be afforded in the year of waiver out of deduction from salary income even though the Act does not contain any specific provision in this regard.The court citing the SC decision in the case of CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC) and the Bombay HC decision in H.M. Kashiparekh & Co. Ltd. v. CIT [1960] 39 ITR 706 (Bom.) went on to elaborate the concept of Salary and its taxation in the following words:[Before we part with this case we may point out that the Legislature has provided that salary becomes taxable when it becomes due, that is, on the accrual basis and whether you call it `accrual basis' or to use the language of the relevant section of the Income-tax Act, 1961, say `when the amount of salary becomes due', the principle is the same. It is because of these special provisions of the Income-tax Act, 1961, section 15, that we have come to the conclusion in the instant case that the assessee is liable to pay tax on the amount of salary that became due to him even though subsequently he waived his right to receive the remuneration. However, it appears to us that it is the very basis of the principle of a particular amount being considered as income on the basis of accrual that if at any subsequent point of time it is found that that amount is not deemed to have been received on the basis of accrual or has not in fact been received and the right to receive that amount has been given up because of circumstances of the particular case, then in the year in which the right to receive the money has been waived or given up or agreed to be given up is the period during which an appropriate relief must be given by way of deduction to the assessee concerned because if that were not to be done, the very basic principle of accrual is violated. That principle is that though not received on the basis of accrual, it is due to be received and the tax is payable and has to be paid on that basis. If subsequently it becomes clear that that amount is not to be received though accrued earlier and is not going to be received at all, it is in the fitness of things that corresponding deduction for the amount waived or written off should be given to the assessee in the year of account in which such amount is written off or waived or debited. It is on this basis that in the system of mercantile account keeping, bad debts are written off and deductions are allowed on the basis of bad debts being written off in the year in which the debt is written off by the assessee concerned. It is true that so far as `salaries' are concerned, the income chargeable under the head `Salaries' shall be computed after making the deductions set out in section 16 and the deduction of the type that we are pointing out is not contemplated by the actual words of section 16. But what we are pointing out goes to the very root of the notion of `income' and before anything can be considered `income', this principle which follows from the basic approach of `income accrued' being considered on the same footing as income received must be accepted. It is for the authorities concerned to consider whether in the year in which the assessee agreed to waive his right to receive the amount of Rs. 4,800, he would be entitled to the deduction of this amount on the ground that that which had accrued was in fact not received by him. We are conscious that we cannot issue any directions to the income-tax authorities in this connection but we thought it our duty to explain the legal position as we see it."]In the light of the above discussion, in my view, only net salary (after adjustment of notice pay) need be reported in Form 16. An appropriate footnote may be appended explaining the adjustment. These days the new employer also undertakes to bear the loss arising to the employee on account of his suddenly leaving the previous employer. This reimbursement of notice pay by the new employer is taxable under the head Salary as Profits in lieu of salary u/s 17(3)(iii)(A). So even from a commonsensical point of view, the poor Naukriwala can't be made to pay tax on the same amount twice. Thanks,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, "Dhruv Arora" wrote:>> Dear Members> > As a usual practice, most companies require their employees to inform them> in advance (a prescribed period), in case they want to leave the job.> It is mandatory for the employee to serve such prescribed period, before he> or she can be relieved.> If the employee fails to serve the notice period he or she is liable to> monetary penalty.> > Now, my question is that can employee claim such penalty against the Salary> Income?> Form No. 16 issued by the company, states the Gross Salary only.> However, the full an final settlement sheet, issued by the company on his> letterhead, mentions such deduction.> > Kindly advise, it would be of great help if a supportive provision/case law> can be provided with.> > Regards> CA Dhruv Arora> Meerut

Provision for Gratuity--Nine is the Number

Hi Lalita,

A company gets covered under the Payment of Gratuity Act for all time to come the moment the number of employees on its rolls crosses 9. Do check that your company has never had a double-digit staff strength ever since its inception. If nine is the maximum number that your company has ever employed, then there's no question of making a provision for gratuity under the Payment of Gratuity Act 1972 read with Section 2(m) of the Factories Act 1948.I think the auditors suspect that since you're just one employee shy of getting hit by the Gratuity Act, it's just a matter of time before a liability to pay gratuity under that Act arises. But as far as I understand, in determining the liability for gratuity, once you're covered, you don't take into account the period served by the employees prior to the date when the company got covered under the Act. The 5-year count down will start from the day of coverage. Also may be the auditors think the company may voluntarily pay up gratuity to a long-serving employee. Accrual basis accounting will demand that a provision be created from year to year in that event. What you should do is give an undertaking to the auditors—in the Management Representation Letter to be issued in pursuance of AAS 11---that the company has never been covered by the Gratuity Act as it didn't have the required number of employees on its rolls; also that it does not intend to make a voluntary gratuitous payment to any employee at present or in future that would necessitate a provision in the books of accounts. This ought to pacify them auditors!Thanks,CA Sanjeev Bedi--- In http://us.mc508.mail.yahoo.com/mc/compose?to=ICAI_CIRC_MEERUT_CA%40yahoogroups.com, lalita arora wrote:>> Hi,>  > If the Gratuity Act is not applicable to the company, Is it still require to provide "Provision for Gratuity" in its books of accounts?>  > Actually our company has only 9 employees. So Gratuity Act is not applicable to our company. But our auditors want to provide for gratuity in the books of accounts assuming that the number of employees might increase in the next year.>  >  > Pls send ur replies with reference to some case laws/ section/ circular/ notification to support your reply.>  >  > > Regards,> CA Lalita Arora

Arrears of Freedom Fighter Pension-Relief u/s 89

Hi Balu,

As far as I know not all sorts of pensions received by freedom fighters are exempt. Only the amount received consequent to a gallantry award being conferred on someone or an amount one gets in pursuance of a scheme approved by the Central government u/s 10(17)(ii) will be exempt in the hands of the recipient. The government had notified a scheme called the Swatantrata Sainik Samman (Honour to Freedom Fighters) Pension Scheme, 1980 in exercise of the powers conferred on it u/s 10(17)(ii). This scheme was originally floated on 15th August 1972 to mark the 25th anniversary of the Indian independence. In 1980 this scheme was made more liberal with a view to cover more people. Only pensions drawn by freedom fighters under this scheme are exempt. All other pensions in my opinion in the absence of any specific exemption notification would be brought to tax under the head "Income from other sources" u/s 56. Your point about the absence of employer-employee relationship is valid. But that doesn't automatically lead to the conclusion that the income isn't taxable at all. Section 56 is a default section. If the income doesn't fit into any of the four heads and isn't exempt, it'd be taxable u/s 56. The assessee won't be entitled to deduction u/s 57(iia) either since this isn't a family pension—-he himself is drawing it. The relief u/s 89 too it seems would elude the assessee.Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "balunand" wrote:>> Is there an employer-employee relationship here? In my opinion you > should claim the entire amount as exempt.> > Regards> Balu> www.balunand. com> > > > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Gaurav" > wrote:> >> > Hi everybody,> > > > My Grandfather received arrears of freedom fighter and political > > pension during last year. Whether I can claim relief u/s 89 for > the > > arrear. If I can, whether their is any case law on this. Actually > our > > professional person is denying that we can't take relief. We are > > currently showing pension receipt under head 'Income from Salary"> > > > Please reply....> > > > Thanks in advance> > > > Gaurav Pancholia> > > > (pancholia.gaurav @ gmail.com)

Exemption u/s 54--Investment in Two houses

Hi Brijesh,

Yes, there shouldn't be a problem in claiming exemption u/s 54 in such a case. The words used in Section 54 are "a residential house". When we look at Section 54 vis-à-vis Section 54F, the condition of not owning more than one house on the date of transfer laid down in Section 54F stands out and sets it apart from Section 54, which contains no such stipulation. So profits from sale of two properties, provided they were both used for residence, can be invested to claim exemption u/s 54. Now let's look at the investment aspect. Can we invest in more than one house and claim exemption u/s 54? Black's Law Dictionary defines the indefinite article "a" appearing in legal texts as not necessarily relating to a singular item and that it is often used in the sense of `any' and is then applied to more than one individual object. The Strout's Judicial Dictionary too echoes similar views---the word `a', it says, is most frequently the equivalent of the word `any'. And Section 13(2) of our desi General Clauses Act says that singular includes the plural.There are plenty case laws in our favour too. In the case of Rattanlal Murarka [BCAJ 2003, IT Appeal No. 4485/(Mum.)/ 99], it was held that there is no bar imposed under section 54(1) on the assessee claiming exemption in respect of reinvestment of the capital gain in more than one house, provided other conditions of the section are satisfied. In this case the assessee had bought up two houses—-one in Thane and the other in Pune. The exemption was allowed in respect of the total investment made in two houses. Another case law in point is D. Anand Basappa v. ITO [2004] 91 ITD 53 (Bang.).In some cases though the courts have ruled that investment in only one house is eligible for exemption u/s 54. But enlightened opinion is more inclined towards not interpreting the meaning of article "a" appearing in Section 54 as to restrict it to a singular object only. This is also in keeping with the intention behind the introduction of Section 54--to incentivise housing in the country. Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "gujratibrijesh" wrote:>> If any person sold two residential house property (long term capital > gain was arises ) and the sale consideration was invested in two > redidential house property can he claim exemption U/s 54 if any case > decided by court in this regard please send detail > > CA Brijesh Kr Gujrati> Varanasi>

Minor's income--Father no more; Mother remarries

Hi Anuj,

Regarding the clubbability of the minor's income after the death of either of the two parents, the question that we'd need to answer is: Can the marriage still be said to subsist even after the husband or the wife is no more? Section 64(IA) has not dealt with the situation that would arise if either or both of the parents of the minor die. It has envisaged a situation of divorce of the parents—in that event the income would be clubbed in the hands of the parent that maintains the child. > > Does the marriage cease to subsist upon the death of the husband (or the wife)? The Mumbai Tribunal had had an occasion to decide on a similar issue. In Mrs. Rohita Subramanium v. Dy. CIT [2002] 75 TTJ (Mum.) 101, Mrs Rohita's husband had died. The question was: In whose hands would the minor child's income be clubbed? The Tribunal held that the marriage does not break down upon the death of either of the spouses; it subsists even after the death of one of the couple. Whilst both the parents were living, the minor's income was tagged to the parent having higher income. Since death of either spouse doesn't lead to collapse of the marriage, we'd still club the minor's income in the hands of the parent having higher income. Since the child's father is dead and has therefore Zero income, the mother clearly has "higher" income. As such, we shall club the minor's income in the mother's hands. > > The Tribunal in this case seems to have interpreted "subsistence" of marriage in a rather legalistic than a commonsensical manner. A marriage subsists as long as the couple hasn't voluntarily decided to part ways; death being an Act of God does not kill the marriage. The Tribunal members seem to have given their verdict thinking along these lines.> > But the Lucknow High Court in Smt. Laxmi Agarwal v. Asstt. CIT [2003] 133 Taxman 114 (Luck.) (Mag.) saw this issue in an entirely different manner. It ruled that in the case of death of a parent it isn't possible for the revenue to club the minor's income, unless it is proven that the surviving parent maintains the child. So in your client's case where the mother has remarried after the father's death and the grandparents are taking care of the kids, the income won't be clubbed in the mother's hands. > > So the jury is still out on this one. But to me, the Lucknow HC judgement sounds more sensible. And As I had opined in the case where both parents kick the bucket leaving behind the minor with a stream of income; in case of death of the father too, in my opinion, nothing would be taxable in the minor's hands, if it's the grandparents of the child who are maintaining her. This is also supported by the well-accepted dictum of law that in the absence of the machinery provisions in the Act to give effect to the provisions of the charging section, the charging section fails. > > In no case can a minor be taxed directly unless she's a child artist or the like or is physically challenged. > >

Thanks,>

CA Sanjeev Bedi> >

--- On Tue, 6/10/08, Anuj Gupta wrote:> > From: Anuj Gupta > Subject: Minor's income; Parents no more> To: ICAI_CIRC_MEERUT_ CA@yahoogroups. com> Date: Tuesday, June 10, 2008, 3:35 PM> > > > > > > > > I came across a situation which is similar to the query answered by the star contributor Sh. Sanjeev Bedi but yet unique also, because in my case the father of the children has died and the mother has remarried, leaving the custody of children with the grandparents, who have applied for the guardianship of the children.> > Now the children have got money from LIC and also the other sources to invest. Who will be liable to tax on such interest income received from investments made in name of children.> > Regards> > CA. Anuj Gupta> > >

Re: Minor's income; Parents no more> > > > >

Hi Piyush,> >

With the death of both the parents, the clubbing provisions of > Section 64(1A) go out the window. Even if the parents divorce, > clubbing provisions still hold; the kid's income is clubbed along > the income of the parent who maintains the kid. But in the > unfortunate event of both Mummy and Daddy Allah-ko-piara hoeing, > there's no way you can club the child's income with any of his > uncles, aunties or grandparents.> > Consider the following judgement of Chennai Tribunal in the case of > R.P. Sarathy v. Joint CIT [2005] 97 TTJ (Chennai) 801; [2006] 5 SOT > 731 (CHENNAI):> > [Facts:> > The parents of the assessee, who was a minor, died in an accident in > June/July 1993. Her grandfather sent her to school under his > guardianship. She inherited movable and immovable properties of the > deceased parents and also from her grandmother. The amounts received > by her by way of inheritance and gifts on birthdays were invested by > her grandfather. For the relevant assessment years she computed her > income and filed nil return on the ground that the income of minor > was not taxable. The Assessing Officer, however, assessed the entire > income in the hands of the legal representatives of the assessee. On > appeal, the Commissioner (Appeals) confirmed the action of the > Assessing Officer.]> > On appeal the Tribunal held that none of the exceptions (divorce or > personal skill of the minor) applied to the assessee as neither of > the parents was surviving. The minor was not liable to file the > return of income as per the provisions of the Act, in case both the > parents were not alive. Section 64(1A) does not speak about the > situation where both the parents are not surviving. But from > Explanation (b) to sub-section (1A) of section 64, it can be easily > conferred that the minor's income, in case both the parents are not > alive, cannot be assessed in the hands of the grandparent or any > other relatives. Further, there is no provision to assess the > minor's income in the hands of the minor and if the parents do not > survive, then that income cannot be clubbed in the hands of any of > his grandparents or anybody who maintains the minor child. Since the > parents of the minor were not surviving in the instant case in hand, > the income of the minor could not be clubbed in the hands of her > grandfather. Accordingly, the orders of the lower authorities were > quashed.]> > So it is clear that in the absence of both the parents, clubbing is > ruled out. The above judgement also correctly says that there is no > provision to assess the minor's income in the hands of the minor > himself, barring that manual skill/child prodigy exception. So does > that mean in the instant case, nothing would be brought to tax on > the interest earned on FDRs created out of insurance proceeds > received from the LIC consequent to the death of the parents? > > The answer it seems, also taking the ratio of the above ruling into > account, is: Yes. It seems the lawmakers, whilst they did visualize > the divorce and the child prodigy situations, forgot to think of a > situation where both the parents depart for their heavenly abode > leaving the underage kid behind. What would happen to the surviving > minor child's income? > > In my opinion, it won't be taxable at all.> >

Thanks,> >

CA Sanjeev Bedi > > ---

Dear All,> >

Please guide me in following matter:> > One minor has received plenty of funds from LIC due to the death > of his both of the parents. At present the said minor child is under > the guardianship of his maternal uncle. The amount of funds so > received is proposed to be invested in bank FDRs. In whose income > this interest income would be clubbed. Whether, in such case, since > due to the death of the both of the parents, can return of the minor > be filed through any representative assessee without attracting the > clubbing provisions u/s 64(1A).> > I shall be very thankful for the kind guidance in the aforesaid > matter.> > With Regards.> > CA. Piyush Jain (Rishikesh)